‘Difficult but necessary’: Xero to cut up to 800 jobs

Xero chief executive Sukhinder Singh Cassidy. Photo / Xero

Xero’s new chief executive Sukhinder Singh Cassidy’s first major move is to announce a 15 per cent cut in staff with the elimination of between 700 and 800 roles at a cost of between $25 million and $35m.

Singh Cassidy, who stepped into her current role in February, has also chosen to exit the cloud-based lending platform Waddle, which Xero bought in 2020, and to write off between $30m and $40m as a result.

Xero wrote $25.9m off Waddle’s value when it announced its first-half results last November.

“We have made strong progress in executing our strategy. However, as we aspire to build a higher performing global SaaS [software-as-a-service] company and to enable Xero’s next phase of growth and drive better customer outcomes, we need to streamline and simplify our organisation,” she said in a statement.

“These changes, and our decision to reinvest in key strategic areas, will adjust our operating cost base as we balance growth and profitability, while taking a robust approach to capital allocation that supports long-term value creation.”

Xero’s shares on the ASX rose 10 per cent in early trading this morning following the announcement.

Singh Cassidy said the headcount reductions will improve Xero’s operating profitability as its operating expense to revenue ratio is expected to reduce significantly in the 2024 financial year.

“Management is targeting an operating expense to revenue ratio in full-year 2024 of around 75 per cent.”

For the current year ending March, Xero is expecting to report a ratio towards the lower end of 80 per cent to 85 per cent.

‘Difficult but necessary’

The costs are expected to have “an immaterial impact on cash flow” in the current year because the majority of redundancy payments are expected to occur in the 2024 financial year.

“Xero remains committed to its aspirational focus on continued operating efficiency over the long term and will take a disciplined approach to reinvestment of cash and generating long-term shareholder value,” the company said.

These decisions are “difficult but necessary steps as we work to further strengthen Xero for the future, while carefully balancing the interests of all our stakeholders”, Singh Cassidy said.

“We don’t’ take these decisions lightly and we recognise today is a very hard day for our people. Today’s announcement does not take away from the significant contributions from everyone at Xero,” she said.

Staff layoffs are very fashionable at technology companies, particularly those based in the US – Singh Cassidy is based in San Francisco – many of which had assumed the rapid acceleration in the uptake of technology that occurred during the covid pandemic would continue indefinitely into the future.

According to the crunchbase.com website, more than 94,000 workers in US-based tech companies, or tech companies with a large US workforce, have been laid off so far this calendar year following more than 140,000 job losses in the sector last year.

- BusinessDesk